Last month, the Federal Circuit affirmed an Order by the U.S. District Court for the Northern District of California, finding that Appellant Walter A. Tormasi lacked the capacity to sue under Federal Rule of Civil Procedure 17(b). Mr. Tormasi had filed suit against Appellee Western Digital Corp., asserting that Western Digital had infringed claims 41 and 61-63 of U.S. Patent No. 7,324,301.
Mr. Tormasi is an inmate in the New Jersey State Prison, which has a "no-business" rule prohibiting inmates from commencing or operating a business without prior approval from the Administrator (i.e., the chief executive officer of any State correctional facility within the New Jersey Department of Corrections). Without the Administrator's prior approval, Mr. Tormasi formed an intellectual property holding company, Advanced Data Solutions Corp., appointing himself as Director, Chief Executive Officer, President, and Chief Technology Officer. Mr. Tormasi then filed a patent application that issued as the '301 patent (which relates to the art of dynamically storing and retrieving information using nonvolatile magnetic random-access media, specifically hard disk drives). Acting as Director, Mr. Tormasi transferred the rights in the patent application to himself in exchange for all shares of Advanced Data Solutions stock, then transferred the application back to himself, and then twice transferred the '301 patent to himself. In January 2019, Mr. Tormasi filed suit against Western Digital for infringement of the '301 patent. Western Digital moved to dismiss the suit for lack of standing and capacity to sue, and the District Court issued an Order, finding that Mr. Tormasi lacked capacity to sue in view of his violation of the no-business rule.
On appeal, Mr. Tormasi asserted that his lawsuit could not be construed as an unpermitted business activity because he sought to enforce his personal intellectual property rights. A majority of the Federal Circuit disagreed, stating that Mr. Tormasi's attempt to file the lawsuit as a personal action "merely repackages his previous business objectives as personal activities so he may sidestep the 'no business' regulation," and finding the "characterization of his suit as personal, as opposed to related to business, to be without merit." The majority found that "[b]ecause New Jersey prohibits inmates from pursuing a business, and because of Mr. Tormasi's repeated attempts to profit as a business from the ['301] patent, the District Court did not err when it determined that Mr. Tormasi lacked the capacity to bring this suit for patent infringement." The majority therefore affirmed the District Court's Order.
Writing in dissent, Judge Stoll asserted that Mr. Tormasi had not waived his argument that the "no business" rule did not limit the scope of an inmate's capacity to sue under New Jersey law, as the majority had found. Judge Stoll explained that Mr. Tormasi's argument that "imprisonment status or prison behavior is irrelevant to the capacity-to-sue standard," had "fairly preserved" his legal argument that the "no business" rule cannot generally limit the scope of an inmate's capacity to sue. Judge Stoll, therefore, concluded that the "no business" rule should not have been at issue at all.
Tormasi v. Western Digital Corp. (Fed. Cir. 2020)
Panel: Circuit Judges Wallach, Chen, and Schall
Opinion per curiam; dissenting opinion by Circuit Judge Stoll